Residence nil rate band/Pensions

Trusts Discussion
1

Hi

I have a client whose total estate will exceed the £2million threshold for claiming the full residence nil rate band if his pension is included.

The pension is approx 1.5million in a SIPP, which will pay to his spouse after death.

I have seen various articles stating that pensions definitely do not count towards the 2m threshold. Can anyone confirm the position re pensions or help me with any authority on this?

Thank you
Kirsty Cartwright
St Helens Law

2

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46001

RNRB is only applied against the estate on death. Pensions are not included in the estate for IHT purposes.

Francesca Gandolfi
Canada Life

3

Pension benefits in a SIPP should not be included as part of his estate – it is a trust based UK registered Pension Scheme outside of his estate for UK IHT purposes and is not governed by any Will you draft for him!

Oliver Sloam
Nigel Sloam & Co.

4

Thank you very much. I thought this was the case but the client wanted me to direct him to an authority for peace of mind.

Kirsty Cartwright
St Helens Law

5

It is possibly worthwhile bearing in mind the options on death under the Sipp.
The fund could be paid out either as a lump sum, or in the form of a dependant’s or nominee’s drawdown plan.
Hopefully the Sipp offers both options, and it is generally preferable to opt for the drawdown plan, where the fund remains under pension rules.
Quite apart from the income tax implications if a lump sum is paid out on death after age 75, any benefit paid out as a lump sum potentially becomes part of the spouse’s estate, if not the original member’s, and therefore scuppers the residence nil rate band.

Mike Gordon
Perspective Financial Group